DEALBOOK; Tokyo Stock Exchange To Acquire Osaka Rival

By HIROKO TABUCHI

Published: November 23, 2011

TOKYO - The Tokyo Stock Exchange, Japan's largest, on Tuesday announced a $1.1 billion merger deal with the Osaka Securities Exchange that would create the world's third-largest exchange, as measured by the value of listed stock

The deal, which would unify the two exchanges by January 2013, is a bid to keep up with stiff competition among global market operators and to put Japanese equities back on the world map.

With listed stocks worth about $3.6 trillion, the new exchange would trail only NYSE Euronext and Nasdaq OMX, both based in New York, according to Reuters.

The merger deal, which comes after months of difficult negotiations, aims to reverse a decline in Tokyo's standing as a global financial center. The Tokyo Stock Exchange, which in its heyday in the late 1980s was by far the world's largest, has since seen trading slump in tandem with the Japanese economy.

The Topix index is down 75 percent since the peak of Japan's asset bubble, in December 1989. Japan fell behind China as the world's second-largest equity market in 2008.

With a home market still dogged with economic stagnation, the outlook for Japanese equities has become increasingly dismal. Trading volumes have tumbled by half since a rally in 2006 and 2007, and hit a new low for the year in October.

Competition for investment dollars, meanwhile, has heightened as the world's stock exchanges have joined forces to bolster their offerings and save on costs. A proposed merger of Deutsche Borse and NYSE Euronext, if approved by the European Union, would create the world's largest exchange operator.

The Tokyo and Osaka exchanges have struggled to persuade overseas companies to list in Japan. Of the roughly 2,300 companies listed on all sections of the Tokyo Stock Exchange, only 12 are non-Japanese. No new foreign companies listed in 2010.

A $140 million high-speed trading system introduced by the Tokyo Stock Exchange last year, intended to attract hedge funds and other high-frequency traders to Japan, has done little to lift trading volumes.

''For a Japanese stock exchange to survive such global competition as a player,'' the Tokyo and Osaka exchanges said in a joint statement, ''it must establish a highly liquid and efficient market and enhance the convenience of investors and companies'' through economies of scale, more services and lower costs.

The two exchanges appear to be a good match: Tokyo dominates the cash equity market in Japan, while Osaka specializes in derivatives trading. By combining trading systems, the new exchange expects to save 7 billion yen ($91 million) a year in operating costs.

Atsushi Saito, chief executive of the Tokyo Stock Exchange, will head the new exchange, tentatively named the Japan Exchange Group, the statement said. Michio Yoneda, the head of the Osaka Securities Exchange, will become chief operating officer.

This is a more complete version of the story than the one that appeared in print.

PHOTO: Atsushi Saito, head of the Tokyo Stock Exchange, left, with Michio Yoneda, head of Osaka Securities Exchange, in Tokyo. (PHOTOGRAPH BY TOMOHIRO OHSUMI/BLOOMBERG NEWS)